Two Asian Tigers’ effects on Commodity Economy

Japan, the most stable economy on Earth and China, the largest economy on Earth have a deep correlation in between. Japan is the only economy in the world which has been able to control its inflation even lower than 0.5% since more than a decade. One view can be that it is not good on the whole because the economy suffers from the liquidity trap and the market needs to be rejuvenated with policies as the money holding increases in the market. But then, the other group of people may have a verdict that when most of the large economies have kneeled down before the inflation, it is more than good to praise Japanese economy for its controlled inflation. But now, Japan has been facing the longest run of trade deficits as the exports have gone down and it can be expected that Japan is more than capable to revive back soon. Bank of Japan has been working hard to tackle this challenge of liquidity trap and revive back. Exports of Japan have decreased by 2.9 percent whereas Imports of Japan have gone up by 11.9 percent, thus widening the X-M gap.

Exports to China have also fallen down by almost a 15.8 percent due to the week-long holiday in China for the New Year celebration. Similarly, the exports to Asia dropped by 5.2 percent and that to European Union fell by 9.6 percent. Exports to USA has only has shown an increment of 5.7 percent. Because the trading relation between Japan and USA has been deepening day after day, therefore, Japanese ups and downs will definitely affect the US economy, and ultimately the commodity economy will be affected. Like Fed in the USA, BOJ has also tried to work with the easing. But then the experts believe that further easing by the BOJ may weaken the currency Yen, increase the import costs and then expand the trade deficit. Large fish like JP Morgan, etc. are also expecting the BOJ to add further impetus in the market right after the policy meetings. Japan also has a problem of aging, world’s biggest government debt burden and lack of flexibility in the labor-market.

China, on the other hand, has been expanding faster the expected growth rate and that has given lots of support to the commodity market. Though China had a week-long holiday, the Purchasing Managers’ Index (PMI) of China remained at the level of 51.7, which gives us the understanding that China’s economy has been expanding very well. Though retail sales have increased less than the forecast, the overall demand-supply scenario in the market is balanced enough to support the overall commodity prices.